Why salary transparency is such a good thing

Dominic Monkhouse

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You’ve decided you want to hire some impressive new talent.  They’re the A-Players you’ve been searching for to help you grow your business.  Only trouble is, you need to pay them more than your current team.  The market’s red hot and there’s rampant salary inflation.  What do you do?

Don’t keep it secret.  That’s the worst thing you could do.  If you’ve ever worked in cyber security, you’ll know the best way for criminals to infect a system.  Produce some malware labelled ‘Your company name – Salaries for 2022′ and leave it lying around the office. Any member of staff who spots it is guaranteed to open it.

You can’t stop people talking about what they’re paid. Assume this is going to happen.  If this makes you, as CEO, nervous it’s time to take a long, hard look at your remuneration system.  Admit to yourself there may be unfairness and take steps to mitigate this.  The first one we recommend to our clients?  Salary transparency. Yes – the thought might send you into anaphylactic shock.  But unfairness around what you pay people may be the root of negativity in your organisation.

Working out where there’s unfairness

Ask yourself why you might feel threatened by salary transparency.  Where is there unfairness?  Maybe you’re paying women less for the same job than men.  That would be embarrassing.  Not unlike the situation that befell many local government organisations when the Government mandated the publishing of their gender pay gaps. 

It reminds me of a conversation I had last year on our Melting Pot podcast with the CEO of Brandwatch, Giles Palmer.  They’d had a new CFO who decided to publish their gender pay gap data without any commentary.  Bad idea!  It caused a massive storm.  When Giles tried to explain retrospectively the difference between software development roles (mostly taken by men) and account management roles (which were skewed towards women), he dug himself in even deeper. In fact, he was accused of ‘mansplaining’.  

In response, the company has cleaned up its act.  The leadership team is now 50:50 female/male, software development courses are offered to all female employees and they’re keen to appoint a female Chair.  And they’ve closed the pay gap between men and women.

Maintaining levels of trust

This is all about trust.  And trust is easy to lose.  There’s nothing worse than discovering you’ve been unfairly treated. It can be genuinely corrosive.  Do you remember how bad it felt to be a teenager who’d been cheated on? A big emotional hit that punches you in the gut.  You feel someone’s taking advantage of you. 

It’s the sort of thing that can make people change jobs. And that matters at the moment as the market is so volatile.  Maybe your A-Player gets tapped on the shoulder right at the moment they’re feeling disgruntled.  Or on a quiet Sunday evening, they’re tempted to look at a competitor’s website. The last thing you want is to lose good people when there are easy fixes.

Research points to money being fairly low on the list of motivators to staff engagement.  Until that is, the person starts to feel they’re being treated badly or taken for granted.  Then it reverses and becomes all-consuming.  A key factor in their decision to look elsewhere.

Introducing salary scales

Usually, our blogs are full of warnings for small businesses to avoid copying big business practices at all costs.  Not this one though! Most big businesses have clear and transparent pay scales.  For a reason.  They know it’s the best way to stop negativity in its tracks. 

At IT Lab and Peer 1 we were less than 50 people but still put in salary bands.  We started by looking at job families.  Grouping roles and then giving them a salary banding enabled our staff to know what skills, experience and values-led behaviours they needed to demonstrate before they got a pay rise.  Introducing different levels within these job families gave employees something to aim for. It also provided an easily justifiable reason why some people were paid more than others. 

Solving promotion and management dilemmas

Introducing salary bands will solve another common issue that hits smaller businesses. The feeling that the only way to get a pay rise as a sole contributor is to get promoted to management.  It’s why so many people end up in management jobs when they never wanted to be.  They’re poor managers because they don’t have the right skills.   

Put in place clear, overlapping scales around job roles so that there’s clear career progression.  Say you’ve hired Bob as an engineer.  Two years in you want to reward him for his effort and commitment.  How do you give him a pay rise? 

Don’t default to making him a manager. Have a market-tested scale for Engineers banded from one to five and move him up a band.  Publish this for all the job groups in the organisation along with the skills and abilities you expect at each level.  Do this from the most junior role all the way up to CEO. Whilst you’re at it, publish the spread of salaries that the Executive Team get paid. Make it clear why software developers get paid more than account managers. And tell your staff that if, at any point, they think you’re not paying the market rate to flag this up.  Then you can do a piece of ad hoc work to rectify it.

By taking this approach, you’ll get rid of any inflationary, annual pay rises.  Your staff will begin to realise that, if they want to be paid more, they’ll need to demonstrate a clear reason why. One of our clients, Macquarie Telecom, have a great system when they hire graduates. They take them on with a two year fixed term contract.  It’s clearly laid out from the beginning that every two months, they’ll receive a pay review and promotion.  This is dependent on them gaining a series of industry certifications. It’s totally upfront and refreshingly honest.

Getting staff to set their own salaries

If you’re constantly hitting negativity around the salaries you set, consider another radical idea.  Get staff to set their own salaries.  Yes – you heard that right.  We were also intrigued when we heard about this idea. So much so that we invited the people who’d come up with it (Makers Academy) onto the Melting Pot as our very first podcast guests.

Evgeny Shadchnev, their CEO, described how well it had worked for them.  Makers feel that each person is best positioned to make a qualified decision on their own salary, taking into account feedback from their colleagues and market data.  There’s a clear process if people feel they’re being underpaid.  They tell the organisation how much value they think they offer and find out how much others in the same role elsewhere get paid. They then have to find colleagues who will back this up and document the whole thing before they send it to Finance for consideration. 

What a great way to instil self-awareness in your staff, receiving and delivering feedback and establishing trust. 

Freeing up managers to coach

By introducing salary transparency, you can free up managers to do what they do best – coach.  If there are clear salary bands in place, you’re taking the load of deciding promotions off their shoulders. Along with all the emotive baggage that comes with it. 

At Rackspace and Peer 1, annual pay rises were handled at the Executive Team level.  We decided what the total payroll increase needed to be and put in place clear rules.  If you’d had a pay rise or a promotion in the previous six months or you’d only been with the company for less than six months, you didn’t qualify.  Then we’d divide the pot up, giving a 10%-ish rise to our A-Player, top performers, around 5% to the B-Players and nothing to the C-Players.  Every quarter, managers were grading their teams so this was easy to administer and every week they were measuring performance against OKRs and KPIs.  There was total transparency and, even better, the pay rises weren’t linked to annual appraisals (one of my pet hates).

Planning ahead

Having done the work to decide on job families and their salary ranges, you’ll find it much easier to plan for the future.  Say you reckon you’ll need to hire 150 people next year.  Putting in place a tiered system will encourage you to start your own academy or in-house university – hiring for attitude and then training for skills.  Don’t hire the most expensive people you can find.  Grow your own A-Players. 

Be strategic about where people are located.  We were with a client the other day who’s worked out their optimal mix is staff based in the US, Canada and Brazil.  That’s because this combination will help them manage attrition. If you’re paying people well in Brazil there’s less likelihood of churn compared to a hot talent area in America. They can work out what each job is worth in these different locations. At Peer 1 we were in 22 places and we graded these into A, B and C tier cities.  So it was straightforward to hire software developers in any of these locations because we knew what a level 2 should get paid in each.  It also made it clear to people that their salaries would change if they moved to an office based in a different country. 

Written by business growth coach Dominic Monkhouse. Find out more about his work here. Read his book, ‘F**k Plan B’ here